Drug Pricing from a Legal Perspective & IRA Predictions

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Drug pricing is an issue many companies are trying to tackle from different angles. But how can market access be improved more quickly and for the greatest number of people? In this exclusive Q&A, Alice Valder Curran, life sciences regulatory expert and partner, Hogan Lovells LLP, discusses the biggest drug pricing challenges, different pricing models (e.g., value-based pricing, indication-based pricing, performance-based pricing), current efforts to lower drug pricing, and the Inflation Reduction Act (IRA)—all from a legal perspective.

Pharm Exec: What are the biggest drug pricing challenges you’re seeing today?

Valder Curran: First, enabling indication-based pricing across the Medicare Part B and Medicaid Drug Rebate Programs, in particular. Those drug pricing programs were developed 20 and 30 years ago, respectively, and they were not designed to accommodate differential pricing of the same therapy for use in treating different indications, particularly when the dosing varies significantly by indication. Instead, those programs look to set a single price per dispensable unit of the therapy, and that is why indication-based pricing can be such a challenge.

Second, enabling value-based pricing on a more comprehensive level, including with Part B drugs. We are seeing more value-based pricing in the marketplace, whether in the form of outcome-based discounts or warranties, but it is still very much the exception. Barriers include having clearly defined outcomes-based measures with corresponding data indicators that are readily accessible by the payer, having payers who are willing to invest in the infrastructure to monitor those data (particularly if the insured population is one likely to change plans), and (in the case of a Part B drug) ensuring such arrangements don’t negatively impact ASP to the point that providers are underwater.

More broadly, the increasingly complicated patchwork of federal and state price calculation, reporting, and disclosure obligations make it incredibly difficult for any company to map out a market access strategy that accounts for all the twists and turns of how those laws will impact a product’s commercialization. This complexity drives more sophisticated developers to think about market access in the pre-clinical stage, which I wholly support—but that tells you something about the state of our regulatory framework.

Pharm Exec: Let’s define drug pricing a bit more. In our Pharm Exec Podcast episode (coming August 17), you spoke on value-based pricing, indication-based pricing, performance-based pricing, and more. Can you break down these different pricing models and when each might be preferable?

Alice Valder Curran, Life Sciences Regulatory Expert and Partner, Hogan Lovells LLP

Valder Curran: I would put value-based and performance-based pricing in the same bucket. These are pricing arrangements, most typically with payers, where the developer promises to pay one or more levels of rebate to the payer based on the durability and/or efficacy of the therapy. Durability and efficacy will vary by product, as will the data needed to measure those factors. But in the end, these arrangements look like rebate tiers where each tier is tied to a performance level, and the resulting net price for each tier reflects the imputed value of the product.

Indication-based pricing refers to an arrangement where the overall price of a product at a unit level varies based on the indication it treats. For example, let’s assume a given therapy has two indications, is sold as a tablet, and the dosing for one indication requires 30 tablets per month and the second indication requires 60 tablets per month. The developer wants to set the WAC for a month’s worth of product at $30 for both indications. That would mean the WAC per tablet is $1 for the first indication and $0.50 for the second. Our system doesn’t enable two different WACs for the same product. So, let’s assume the developer sets WAC at $1 but then offers a 50% rebate to payers on utilization for the second indication to get the price for the second indication back down to $30. Problem solved? Not so fast because that 50% discount will set Best Price for Medicaid, and that ends up requiring the manufacturer to pay that rebate on all utilization, so both indications—meaning it just gave a 50% discount on all Medicaid utilization for the first indication, too. That is one example of why indication-based pricing, which makes a lot of sense for a lot of reasons, can be very challenging to execute within the confines of the Medicaid framework, and similar challenges exist for Part B drugs in relation to ASP.

Pharm Exec: What are some of the current efforts to lower drug pricing? In your opinion, which are the most effective for the largest number of people?

Valder Curran: We have seen a lot of progress in the last several years in relation to value-based pricing, both with the Medicaid program’s adoption of the Multiple Best Prices Reporting Option and the emerging use of warranties as well. There is room for both of those strategies to become more prevalent and normalized, and the President’s executive order looks to build on that progress through the use of state pooling initiatives. Those efforts are all about aligning price with value delivered and so do work to lower prices. The ongoing efforts relating to PBM reform may assist in greater transparency to plans and employers as to drug net prices, which in turn can help lower the prices realized by the plans, employers, and (most importantly) the patients, themselves. There is no silver bullet to solve this for a large population because every therapy treats different conditions and different populations. That is why we need a number of strategies because no single strategy works across the board.

Pharm Exec: What should companies consider as it relates to drug pricing from a legal perspective?

Valder Curran: An ounce of prevention is worth a pound of cure. The drug pricing laws in this country are complicated. Work through their application to your therapy early and often to map out how your market access strategy may be constrained by those requirements. My mantra with clients is “purposeful decision-making.” By starting early, you can work through how the laws will apply to your product and adjust your strategy accordingly when it makes sense to do so. That could involve tailoring language in your product label, developing a product in two vial sizes instead of one, or pursuing a second indication through a second NDA/BLA, to name a few options. All of those strategies require early planning. But by starting early, you can make purposeful decisions about what strategies are worth the time/cost involved and which ones are not.

Pharm Exec: Let’s talk about the IRA. What should companies be watching for? What do you anticipate will be the impact on companies from the IRA? And lastly, what IRA milestones will we be seeing through the end of the year?

Valder Curran: First and foremost, developers need to evaluate their portfolios to determine how the IRA will impact them. Once they do that, they should do the same exercise for key competitor programs—because if the IRA impacts your competitor, it will impact your product, too. Second, watch what happens with this first round of selected drugs and the negotiation process. We will learn a lot from the drugs that do/do not get selected (by September 1) and by what the manufacturers of selected drugs put into the public sphere about the process once they submit their data (by October 2) and the negotiation process begins. Third, watch what happens in the litigation. We have heard a lot from the industry, but we haven’t seen (yet) any substantive filings by CMS. Those filings may be informative as well.